Chapter 2
No of competitors
Type of product
Barriers to market
entry
Example
Monopoly
One
Unique - almost no
substitutes
Very high / usually
blocked
Eskom
Oligopoly
Few
Homogeneous
Major
Cellulay phone operators
Monopolistic
Many
Differentiated with many
substitutes
Few and not major
Home electric appliance
companies
Perfect Competition
Many
Homogeneous
None
Agricultural prods such as
soya beans
Type of competition
Chapter 2
Competitor Analysis
• Process of identifying an org’s competitors ,
understanding their objectives, and strategies,
and assessing their strengths/weaknesses
• Key quests:•
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Who are the org’s competitors?
What are their objectives?
What competitive strategies are they pursuing?
What are their strengths/weaknesses?
How are they likely to respond to competitors’
actions?
Chapter 2
Who are the competitors?
• Two ways :Industry approach
Market approach
• Industry approach – businesses producing prods that
are close substitutes
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•
Absa, FNB, Std Bank and Nedbank competing firms –
banking industry
Coca-cola and Pepsi – soft drink industry
• Marketing approach – competitors providing prods
that satisfy the same customer need
•
Quenching of thirst – satisfied – variety of prods, bottled
water, soft drinks, ice tea and fruit juices
Chapter 2
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Who are the competitor’s objectives?
Pursue a mix of diff objectives – these determine
the strategies that they take as they compete in
the market
Common marketing objectives – relate to
profits, sales, market share and customer
orientation
Diff marketing objectives for diff markets /
market segments
Imp to look at not only the overall business obj
but also objectives at prod/market segment level
Chapter 2
What competitive strategies are they pursuing?
• Compete on low prices or quality
• Michael Porter identified three generic
competitive strategies
• Cost leadership strategy
• Differentiation strategy
• Focused strategy
Chapter 2
What competitive strategies are they pursuing?
• Cost leadership strategy
• Producing prods at lowest possible prices – to
sell at prices lower than their competitors to a
broad target market – Game and Shoprite
• Differentiation strat
• Products are unique (different to that of
competitors) selling to a broader mkt
• Woolworths Foods emphasizes differentiation
rather than low prices
Chapter 2
What competitive strategies are they pursuing?
• Focused strat
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•
Target a narrow segment of the market – excluding
others
E.g., clothing retailer – sell clothing for children
between the ages of 3-10yrs
• Two variants:
•
•
Focused cost leadership – lower its costs – sell at
lower prices than competitors
Focused differentiation – uniqueness of prods rather
than low prices
Chapter 2
•
Competitive Advantage
Advantage a business has over competitors
•
•
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Gained by offering consumers – same benefits as competitors
but at a lower price,
Or, delivering more benefits than competitors
What are the competitor’s strengths weaknesses?
To assess collect relevant info re:
1.
2.
3.
4.
5.
Competitor’s HR – marketing personnel, skills of employees, staff
deve programmes,
Financial/technological resources
Supplier and customer info –major custs and suppliers, service
quality levels
Marketing strats – planning & control systems, incl, 4 P’s strategies
Operating results – period of time – i.t.o – sales, marketshare, profit
margins and costs
Chapter 2
Competitive Advantage
• Info can be collected - variety of sources
•
•
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Annual reports
Websites and promo messages
Personal interviews – staff, custs, suppliers
Must be in an ethical manner
• This info can be used to benchmark a firm
against leading firms in the industry
Chapter 2
•
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Competitive Advantage
How are they likely to respond to their competitor’s
actions?
Some competitors respond swiftly and aggressively
Some may delay their responses
And others may choose to respond to some actions
and not to others
A competitor interest in maintaining a high market
share – more likely to respond to the actions of
competitors – to make inroads in that strategic market
Business following cost leadership – will respond
quickly to price cuts by competitors
Chapter 2
Determining market attractiveness
• The different players in the market environ affects a
company’s level of competitiveness
• Michael Porter identifies – “five forces of competition”
• This is used to assess a firms’ level of competitiveness in a
market
1. The threat of new entrants
•
•
•
Bring increased competition and can threaten a company’s
profits and share of the market
E.g. budget airlines - Kulula.com and 1Time – domestic air
travel market – SAA lost market share
The threat of new entrants is high in industries with low
barriers to entry and low where barriers to entry are high
Chapter 2
Determining market attractiveness
• Common barriers to entry:• High capital reqts
• Lack of access to prod resources and distr
sources
• Effective differentiation - increased customer
loyalty
• Economies of scale
• High switching costs
Chapter 2
Determining market attractiveness
• Economies of scale - average cost per production
unit decreases as the production run gets bigger
– fixed costs are shared over an increased no of
goods
• Switching costs – once off cost incurred by
customers when switching to another supplier
• E.g decision to use a different software package
in business – employees will have to be trained
to use it
Chapter 2
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Bargaining power of suppliers
Higher the bargaining power of suppliers – the less attractive that
market is
Suppliers – have more power in a mkt – if they can increase the
cost of their prods or lower prod quality at will
Power of suppliers driven by:•
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Uniqueness of their product
How great the costs of switching are
Businesses – find a market – unattractive – if it has an unfavourable
supply situation, i.e. too few suppliers offering unique prods with no
close substitutes
Suppliers will have large amt of bargaining power and can choose
who they want to do business with
E.g African Oxygen (Afrox) biggest supplier in southern Africa –
gasses used in manuf. Soft drinks, often has more demand for its
prods than it can meet – means that it has a strong position to
bargain with soft drink manufacturers
Chapter 2
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•
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Bargaining power of buyers
Customers – more power if they can drive prices down or
dictate other terms of sale
The higher the bargaining power of buyers – the less
attractive the market is
Driven by a no of factors:•
•
•
•
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No of buyers relative to the supply
Uniqueness of the prod
Costs of switching
The importance of particular buyers
Attractive markets are – large nos of unorganised buyers,
buying unique prods with no close substitutes, with each
buyer buying small quantities and facing high switching costs
Many big retailers have so much bargaining power that they
can force their suppliers to reduce prices
Chapter 2
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Threat of substitute products
E.g – margarine / butter, potatoes / rice
If the price of one prod increases, consumers will
switch to the other – this limits the potential for
price invcreases
Threat of prod substitution increases – when
switching costs are low , and quality and
performance is equal to or higher than its
competitor
E.g introduction of cellphones to SA put Telkom’s
landline business under pressure
Chapter 2
Intensity of rivalry among competitors
• Affected by a no of factors:•
•
•
•
No of businesses competing in a mkt
Level of prod differentiation
Size of the mkt
And whether the market is growing or not
• High rivals – associated with large no of
competitors, low levels of prod differentiation
and slow of declining customer markets
Chapter 2
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•
•
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The internal market
Consists of actors and forces within an organisation –
affects its ability to effectively serve its customers
Only part of the marketing environment – under
direct control of the org’s management team
Analysis of internal environ important – helps
management – better understand the org’s strengths
and weaknesses
Factors that should be looked at:•
•
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Organisation’s mission and objectives
Resources
Skills and capabilities
Chapter 2
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The mission
Mission statement – reason for existence
Invisible hand to guide the activities of the
employees and how its resources are used
Good mission statement – customer-oriented
- customer satisfaction – key to success
Def:
• Business objectives – things an organisation
wants to achieve over a given period of time
Chapter 2
Business objectives
• Directly linked to the mission statement
• Set at various levels of the org:• Corporate level
• Strategic business unit level
• Functional level
• Corporate level – relate to whole organisation
• E.g Absa Bank - overall objectives – apply to
whole org
Chapter 2
Business objectives
• Strategic business unit level
•
Relate to specific product markets – e.g home loan
section, private banking section and car financing
section – each have their own objectives
• Functional-level - - function areas of the org that
support strategic business units and the
organisation as a whole
• These include marketing , finance, production,
procurement, and human resource management
– each have their own objectives
Chapter 2
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•
•
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Business objectives
Objectives must be SMART
Specific – specify what needs to be achieved - objectives relating
to profits, market share, brand awareness
Measurable – success can be easily traced – e.g to increase market
share by 10% by the end of the current year
Achievable – needs to be challenging but achievable – too high
objectives – managers who set too high objectives - cause staff to
become discouraged when they fail to reach their targets
Relevant – should add something useful to the org – important to
ensure that lower-level objectives – aligned with overall
organisational objectives
Time-bound – should be set within a time frame (usually a year,
long-term and short- term plans – have different timeframes)
Chapter 2
•
•
•
•
•
•
Business objectives
Objectives must be SMART
Specific – specify what needs to be achieved - objectives relating
to profits, market share, brand awareness
Measurable – success can be easily traced – e.g to increase market
share by 10% by the end of the current year
Achievable – needs to be challenging but achievable – too high
objectives – managers who set too high objectives - cause staff to
become discouraged when they fail to reach their targets
Relevant – should add something useful to the org – important to
ensure that lower-level objectives – aligned with overall
organisational objectives
Time-bound – should be set within a time frame (usually a year,
long-term and short- term plans – have different timeframes)